The oil rent and the
economic crisis in Venezuela
March 2018
The Venezuelan economy is experiencing a
very complex crisis. Common sense invites us to draw hasty conclusions,
explaining the problem trough the so-called resource curse. In my opinion, the
oil rent is neither a blessing nor a curse. The oil rent is just a peculiar
income that deserves a different conception into the national accounts in order
to understand the performance of these oil-exporting economies. Deconstructing
the “curse” argument and taking into account some peculiar aspects of the
global oil business can give us initial answers to understand the Venezuelan
crisis.
What
is the oil rent? What is the oil price? The oil rent is a fluctuating income,
linked to the global productivity of the oil wells in the world market
(Differential Rent or Ricardian Rent). In nowadays, the global productivity of
oil wells is due to the traditional natural conditions and to the emergency of
new technologies, such as “Shale Oil” in US. Thus, the price of a barrel, after
pay wages and profits, depends on the production cost of the least productive
well, creating a differential of costs that the most productive regions have taken
advantage.
Oil
rent at stake. Thus, the oil
rent is a widely accepted, inevitable and a specific remuneration into the oil
business. In historical terms, National Oil Companies (NOC), Major Oil
Companies (MOC), oil national states and private owner (only in US) have been
fighting to taking advantage of the oil rent. In Texas, Alaska, Saudi Arabia,
Kuwait, Norway, UK, Nigeria or Venezuela the property rights regime represents
the main legal tool to keep part of the rent. In the last 100 years, Venezuela
developed a specific fiscal regime that inspired the foundation of the
Organization of Petroleum Exporting Countries (OPEC), an organization made it
to fight for the oil rent from the supply side.
What is the problem
with the oil rent? Even if the oil rent has
been a historically and recurrent income for the Venezuelan economy, the uses
of the oil rent rest unsolved. Indeed, the problem with the rent starts when
a country, an entire economy, makes policies (both, in the oil and non-oil
sectors) counting on the oil rent as if it was a stable and an inexhaustible
income over time. Indeed, one of the ideological risks with the oil rent is to
suppose the fiction of having that income in the future, committing the
majority of the time to the country with external debt. This was the case of
the origin of the external debt during the 80's and it is what is happening now.
Why the falling of oil
rent is the crisis of the national economy? The
crisis in an oil rent dependent economy occurs when oil prices fall below the
commitments made in the national budget. If the economic system did not save
funds aside for the low prices periods, if the economic system is not prepared
for the fluctuations of the oil rent, a crisis ensues, whose dimensions will
always have the size of the commitment acquired.
However, the current Venezuelan crisis has three additional
characteristics:
· The national oil
industry has suffered a significant deterioration in its productive capacity[2].
· The non-oil sector devoted
to food production (dependent also on the oil rent), has suffered very serious
consequences in its productive capacity.
· The inefficiency in the
internal fiscal accounts and the unsustainable exchange rate parity creates
profound distortions throughout the whole economy.
This also causes a drastic reduction of foreign currency
and a generalized deterioration of the productive sectors, having a hyper-inflationary effect on prices
Non-productive solution
for the massive economic crisis. The national government is still far from initiating a
plan of economic reactivation oriented to the national production. On the
contrary, the fall of the oil rent has led the government to look for other
sources of rent, exacerbating the extractive condition of the economy. At
present, the government is trying to recover revenues through indebtedness with
a cryptocurrency called Petro, committing future barrels of oil in private
hands and reversing rights obtained in 2001 with the Hydrocarbons Law. Petro
will undoubtedly has a direct consequence on national sovereignty. In addition,
government has created the Orinoco Mining Arc, for the exploitation of gold and
other minerals, placing more than half of the southern province of Guayana at
the disposal of large transnational mining corporations.
What to do with the
oil rent? In
Venezuela, the public discussion about the uses of the oil rent in the national
development starts in 1934, and is still on going. However, the ambiguous
conception of the oil rent since 1976 has prevented a consensus on the uses of
oil rent, leading the economy indebtedness and to the mismanagement of the oil
rent.
Building
accountability for the oil rent. Oil exporting
economies have to deal with the oil rent as inevitable part of its national
income. The main challenge is how to build a national account system and
institutional framework oriented to the accountability of this oil rent, in
order to prevent the historical mismanagement that this country has witnessed.
References and Sources
- Mommer, Bernard (1989). ¿Es posible una política
petrolera no rentista? In Revista BCV: Caracas, Volumen 4 – No. 3 – 1989; pp.
56-107
- Murshed, S. Mansoob (2004) ‘When
Does Natural Resource Abundance Lead to a Resource Curse’, IIED-EEP Working
Paper 04-01, www.iied.org.
- OPEC (2018) Monthly
Oil Market Report, 12th February 2018. Available in http://www.opec.org/opec_web/en/
- Regnault, Blas (March 2018). “Synchronicity between recent
transformation in liberal institutional frame in Venezuela and the new
challenges of a ‘green’ global oil business”. MIMEO.
[1] Blas Regnault is a Venezuelan
Sociologist, devoted to the study of global oil price cycles and its impact on
the sustainable development in oil exporting economies.
[2] According to the OPEC, the Venezuelan Oil production
losses 604,000 barrels per day since 2016 (2,373 MBD 2016/ 1,769 MBD Jan 2018).
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